2006 Federal Budget Implications and Outlook

1. 2006 Federal Budget Implications and Outlook • Simon PomfretIRIS Research

2. Outline • China & Oil • The interest rate rise we needed to have??? • Highs and lows for the local economy • Budget Initiatives

3. Longest Period of 4%+ growth since the oil shock

4. World Growth by Country

5. Asian roundup

6. Oil Prices now higher in real terms than any time since September 1982

7. The Chinese Story.. • Exports $16 Billion • Iron Ore $6 B • Wool $1.3B • Copper ores $0.6B • Coal $0.5 B • Imports $21.3 B • Clothing $3 B • Computers $2.4 B • Toys, games & sporting $1.1B • Telecommunications $1.1 B • Trade in services • Education $1.5B

8. After slowing in 2005, domestic economic activity has picked up in early 2006

9. Business Investment has been strong

10. Signs that housing activity may be picking up

11. Growth is having varying impact on relative performance of state economies – domestic spending

12. Interest rates (blunt instrument)

13. Why Reserve bank was unconcerned?

14. Regional Trading Activity slowing….

15. Finance, Property and Business Services

16. Manufacturing/Mining leading the way

17. Retail/Recreation - spending down

18. Job Opportunities – Coming off record highs

19. Residential housing activity tracking way down

20. Apartments back on the drawing board

21. Volume of house sales back to more normal levels

22. Illawarra Property prices down around 10%

23. Economic context for preparation of the Budget • World is a rosy place • US solid growth • Economic recovery in Japan-Australia’s largest export market • Growth continues in China – Australia’s second most important export destination • Rest of Asia is solid • Australia income is growing strongly on back of commodities • Households are cautious but evidence of slight pick-up retail sales are up

24. Housing construction activity continuing decline-current downturn quite mild • High dollar going to impact on exporters • Nationally everything looks ‘just right’ • However….. current signs suggest a flat 2006 for business in the region. • Building activity low • Spending tight • Labour market is softer • Exporters squeezed by the strong dollar

25. Key Budget Forecasts • Despite spending, still $10.8 Billion cash surplus • Personal tax cuts of $36.7 billion over four years • Salary of $100,000 will be $2700 better off a year, or $51.90 a week • Average wage earners on $55,000 a year will take home an extra $510 a year, or $9.81 a week. • GDP forecast of 3.25% up from 2.5% • Unemployment 5.25% • Inflation 2.75%

26. Where is growth to occur

27. Local Goodies??? • Additional injection for local roads as a supplement to Auslink roads to recovery programme • Increased places for medical students • New programmes to encourage skills development New national approach to apprenticeship, training and skills • Regional skill pilot projects • Additional funding for New Apprenticeship Centres

28. More Local Goodies??? • Increase investment in medial and health research • $12 M to UOW construction of MPF for Centre for Transnational Crime Prevention • Funding to encourage local businesses to establish and maintain key services at regional campuses. • Provide additional funding to assist universities in the transition to voluntary unionism

29. Parting shots • The Costella Coffers are over flowing • Tax cuts again for all and sundry-especially the high earners • Is this going add to inflation pressure & make another interest rate increase more likely? • Still have the head winds of higher petrol prices • Offset the political damage of last week's interest rate hike and rising petrol prices. • Building Strong war chest for next years election • Better spent on Infrastructure initiatives

30. Questions?